The S&P is pulling back with the Fed on tap.
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I told the PitBull that the Friday expiration rips all have one thing in common: They are 99% squeezes and 1% new buying. After watching the rally and then the late selloff Friday and yesterday’s drop, I’m convinced that until the mutual funds and institutional accounts start stepping up in a bigger way, we are bound to see more of the same price action.
Just because we have a new year on the calendar does not mean we have a new market to trade.
When the option premium sellers and future short sellers get too short and the index finds its footing late in the week — aka, the setting up for a Fry-day — the algos know the short sellers are off base and the bots take over the tape. Most of the time the conclusion is a rip higher that actually adds little to support to the markets.
If you get all bulled up, it’s very difficult to watch the ES rally almost 150 points in just a few days, then watch it sell off 75+ points while still maintaining the same view.
This week has a lot of twists and turns. It’s the end of January and the first trading days of February — which matters from a fund-flow perspective — there’s a boatload of big-name earnings, the Fed’s two-day meeting, and the January jobs report.
As for my personal opinion, it’s hard to deny the ES has been going up, but the push up followed by the recent pullback is pretty much the same pattern we have been seeing for months, rally and fail. It’s like the ES can rally, but not get away from its old patterns.
Our Lean: I think we made a good call yesterday with the buy the open and sell the rallies but today is the last trading day of January and I suspect we see another day of two-way price action; I think today could be slow and choppy as traders positions for the Wednesday/Thursday/Friday action.
4020 is a critical level, followed by 3995 to 4005 — or call it 4000. If those levels break, then 3968-3970 could come into play. Our lean is to buy the early dips and sell the rallies. But I don’t want to get overly bearish and I still want to be long for Wednesday’s 25 basis point rate hike from the Fed.
MiM and Daily Recap
The ES sold off down to 4040 on Globex and opened Monday’s regular session at 4054.50. After the open, the ES rallied up to 4072 at 9:48, pulled back to the 4059.25 level, and rallied up to a new high at 4078 at 10:04. After the high the ES sold off down to 4045 and then rallied up to a lower high at 4065.25 and traded back down to a higher low at 4046.25 at 11:55, rallied back above the VWAP up to 4060.75 and then sold off down to 4043.25 at 1:04.
From there, it popped back up to the VWAP at 4057.50 and then dropped back down to the 4040 level and at 2:31 it broke the session low, ultimately creating a late-day dip down to a new low of 4029.50. The ES traded 4036.50 as the 3:50 cash imbalance showed over $1 billion to sell and traded 4032.50 on the 4:00 cash close. After 4:00, the ES traded flat in a 4-handle range and settled at 4039.75 on the 5:00 futures close, down 51.75 points or 1.27%.
In the end, it was a day filled with rips and dips. In terms of the ES’s overall tone, it was very much a two-sided trade until the afternoon. In terms of the ES’s overall trade, volume was steady at 1.73 million contracts traded.
As for the others:
- Bonds high 13016, low 12912 — closed 1292, down -12
- YM high 34123, low 33762 — closed 33785, down 261
- Dax high 15212, low 15033 — closed 16183, down -13
- Crude high $80.49, low z$77.66 — closed $77.90, down $1.77
- NYSE Breadth: 27% Upside Volume
- Advance/Decline: 31% Advance
- VIX: ~$20.50
Are we shifting into a risk-off mindset with the S&P weekly charts near resistance and with the Fed and big-tech earnings on tap? It feels that way with Friday’s late-day action and Monday’s decline.
That said, Monday and Tuesday are small potatoes compared to the Fed on Wednesday, Big Tech on Thursday and the jobs report on Friday.
S&P 500 — ES Weekly
There was some follow-through on Monday’s selling into the overnight session, but the /ES is finding support near the 10-day moving average.
Going into today, watch yesterday’s low near 4030. Back above that mark puts 4045 in play, then 4050, 4063 and finally 4075-78.
On the flip side, keep 4007, then 4000 in mind. If the S&P ultimately breaks below 3994 — the 78.6% retracement of last week’s range — it opens the door down to the 3960s.
Yesterday we looked at the weekly setup for the S&P futures. Sometimes I like to take away all indicators, measures, etc. and just look at the action. I say, “where has price been? Where is it going?”
We have a higher low to work with near 3800. But we also have clear resistance at 4100.
On the downside, we can also use 3950 as a pivot. That’s last week’s low.
We went into yesterday saying “I’m not sure that we’ll see $400 to $400.50, but it’s the first significant line of defense for the bulls.”
We saw just the tippy-top of that range going into 3:30 and gave it a nice late-day pop that eventually faded.
As for today, we’ve gone from a pre-market dip to a pre-market pop. If we see a dip down to the 10-day moving average today — and maybe even the 61.8% retrace — then look for some type of support and a bounce setup.
If we zoom into the 30-minute chart (below), I’m watching the $402 to $403 area as a potential resistance early in the session, if the pop gains some momentum.
Perfect test and hold of the rising 10-day ema. From here, bulls need to see the NQ regain 11,960 — yesterday’s low — then the 200-day near 12,000. Above that puts 12,100 to 12,140 in play.
If the NQ fails to gain traction back above 11,960, the overnight low at 11,871 remains vulnerable to a retest.
A note: After talking to some members, I want to make the setups a bit more clear. We are a trade-ideas service, but want to make entries & exits simpler to understand. We will be sending more updates, a few educational pieces and looking for a way to make our setups more clear in how we are managing them.
- Numbered are the trades that are open.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
— Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be, B/E or better stops.
From this latest round, that includes TLT, DE and FSLR.
- COP — Long from $119, the 2x weekly-up. Trimmed ¼ at the 50-day. Still watching $123.50+ for the next trim. Can technically raise stops to $118-119 or B/E, (whichever suits your style better).
- If still long, $127 to $127.50 is the next trim spot
- NKE — Down to ⅓ or ½ after yesterday’s $128+ Trim. Looking for $130+ to exit more/all. B/E stop.
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
- WYNN, LVS
- NVDA, NFLX, TSLA
- BA & Airlines — AAL, DAL, UAL
- TJX, ULTA, NKE
- XLE — XOM, CVX, COP, BP, EOG, PXD — (Weekly Charts)